“Where the money will be made is the system and software controlling it, and the things they need such as mapping for autonomous cars…and it’s by no means clear carmakers will inherit the earth – it could easily be Google or Uber”
Prof Karel Williams, Alliance Manchester Business School
The traditional car industry has never been under greater threat…or presented with greater opportunities, depending upon which way you look at it?
Here’s a quick look at 5 trends which look set to shape the global car market.
1.Take off in EVs
Having first appeared around ten years ago, the market’s first Electric Vehicles (EVs) were cars with around 80 miles of usable range, priced at a 50 per cent premium over their petrol-fuelled counterparts. Today, in many cases, real-world range has more than doubled and that price premium has almost disappeared.
For 2020, a combination of new government initiatives (e.g. the launch of a new EV charging infrastructure investment fund ‘CIIF’), growing environmental concerns and a raft of personal and business tax incentives are set to tip the balance further in the favour of EVs.
Our previous blog – 3 reasons why EVs are set for massive growth in 2020 – goes into more detail.
2.The largest electric vehicle manufacturer is the most valuable US car company of all time
At the start of Jan-20, a surge in Tesla’s share price saw its market capitalisation exceed Ford’s 1999 record of $80.8bn.
Tesla is now worth almost as much as Ford ($36bn) and General Motors combined ($50bn). The latter produce roughly 14 million vehicles a year combined, compared to Tesla’s output of 367,500 vehicles in 2019; i.e. almost 40 times the production levels.
However, as a dedicated maker of electric vehicles, Tesla has forged a path for mainstream manufacturers to follow, leaving giants like Volkswagen and Toyota to play catch–up as consumer tastes and legislation increasingly favour electric vehicles rather than those powered by fossil fuels.
The car firm that doesn’t make any cars for drivers
“In mature markets, we’re seeing the first signs of peak car as younger generations shift towards a sharing economy model and eschew car ownership in favour of car-sharing services like Uber.”
Prof David Bailey, automotive industry expert, Birmingham Uni
With a market capitalisation in Jan-20 of around $62bn, Uber makes it onto the list of the top 10 most valuable car manufacturers by market cap.
Although in the past Uber has been a pure taxi alternative, the company has been investing heavily in self-driving cars, which will one day pose a credible threat to the sale of new cars.
Despite various setbacks along the way (a self-driving Uber crashing and killing a pedestrian in the USA in 2017, the loss of licenses in major EU cities such as Berlin and London), Uber has redefined what is feasible in the car market. Furthermore, when Uber has been forced to exit a market, another Uber-type service has invariably taken its place.
Brands are becoming less important (in the build)
“The skateboard chassis may create a world similar to smartphones today – a proliferation of meaningless brands, they all do the job. Cars will come with multiple badges. The skateboard will almost be an industry standard.”
Prof Karel Williams
Faced with competition from EVs, Uber, and self-driving vehicles, the major car manufacturers have had to either play catch-up on the EV front, develop their own fuel-efficient technologies (Toyota & Honda, developing hydrogen fuel cells) or seek to reduce manufacturing costs.
It is the latter point – cost reduction – that is likely to have the biggest impact upon the way cars are built going forwards. By way of comparison, look at how the television market has evolved into a handful of manufacturers who make the sets, which are then badged up by different brands.
Car:tech is the joint venture of choice
The following carmakers created alliances with technology companies in 2019:
- Amazon $700m (Spring 19) in electric car start–up Rivian
- Ford $500m (Summer 19) in electric car start up Rivian
- Ford $1bn into robotics and AI company Argo
- JLR supplying 20,000 I-Paces to Waymo (owned by Google) self-driving car business (Volvo has a similar deal with Uber)
- BMW working with China’s Tencent and Baidu on car automation
Note, this is not an exhaustive list, but gives an indication of where the car manufacturers see the future of the automotive industry.
Although still small in absolute terms, the forecast exponential rise in the EV market is already sending shockwaves through the established car makers.
A quick look at the market capitalisations of Uber and Tesla tells you all you need to know about where the financial markets reckon the future value creation currently lies.
Furthermore, as the line between automotives and automatons becomes increasingly blurred, and self-driving cars become more commonplace, the brand premium behind the build of a car is set to be further eroded. In short, who’d want to be a traditional carmaker these days?